Countries With National Health Insurance Have Been More Successful Than The U.S.
In Controlling
Health Care Costs.

The United States spends more on health care than any other country in the world, both in dollars per person and as a percent of gross national product (GNP). Does this mean that the United States, with a predominantly private system, is less able to control health care spending than are developed countries with national health insurance schemes?

As we
shall see, international comparisons of health care spending are difficult, not
least because of differences in measuring techniques. But first we should note that
the United States is wealthier than other countries. Almost without exception.
countries with more income spend more on health care. In fact. health economists
have discovered that 90 percent of the variation in, health care spending among developed countries is based on income
alone.
[9]

This
should give pause to anyone who believes the United
States will significantly lower health care spending by adopting the system or
institutions of some other country. Apparently, as people have more income, they
spend more on health care, whether their spending takes place through the
market, the political system or quasi-public institutions.

United States vs. Canada: Growth in Spending.

Let's take a closer look at the United States and Canada, whose health care
system is often held up to us as a model. In 1987, the United States spent
$2,004 per person on health care, whereas Canada spent only $1,520. Some people
argue that if the U.S. adopted Canada's health care system, it could cut health
care spending by 25 percent. They buttress their argument by looking at the
record over time. In 1967, the United States and Canada spent virtually
identical proportions of GNP on health care (6.33 percent in the United States,
and 6.38 percent in Canada). Canada's system of national health insurance was
implemented between 1968 and 1971. Since then the U.S. has surged ahead. In
1987, the United States spent about 11.1 percent of its GNP on health care,
whereas Canada spent only 9.0 percent.
[10]

The
problem with those comparisons is that health care spending as a percent of GNP
is a fraction. If the fraction grows over time, we need to know whether the
growth is being caused by changes in the numerator (health care spending) or in
the denominator (GNP). As it turns out, the above differences can be almost
totally explained by the behavior of the denominator. Over the 20-year period
(1967 to 1987), Canada's real GNP per capita grew 74 percent, while the U.S.
figure grew only 38 percent.
[11] If we look at health care spending alone,
rather than its relationship to GNP, we discover that:

Before Canada implemented its system of national health insurance, the country
was spending 75 percent of what the United States spent on health care per
person.

In 1987, Canada continued to spend 75 percent of the U.S. level.

Over the 20-year period, real increases in health care spending per capita have
been virtually the same in both countries. (The increase was 4.38 percent in the
United States versus 4.58 percent in Canada.)

Canada has been no more successful than the United States in controlling health
care spending. As Figure I shows, in recent years it has been less
successful.
[12]

United States vs. Canada: Levels of Spending.

There are other problems in comparing United States and Canadian health care
spending:

First, the Canadian number doesn't include capital spending to the same extent
that the U.S. number includes it.

Second, the U.S. number includes research and development (R & D) costs. Canada
engages in very little R & D spending, while U.S. R & D spending results in
technological innovations that benefit Canada as well as the rest of the world.

Third, the U.S. population is slightly older, and older people inevitably
consume more health care.

According to one study, correcting for these
differences between the two countries cuts the gap in the fraction of GNP spent
on health care in half.
[13]

Other
adjustments also must be made. In both countries, the costs of administering
government health care spending are largely hidden. For example, the cost of
collecting tax dollars to pay for health care does not show up in the health
care budgets of either country, whereas the cost of collecting private insurance
premiums is counted as part of U.S. health care costs. Similarly, auditing
expenses are usually included in the budgets of other public agencies. But since
Canada's public sector is relatively larger than that of the United States, far
more of Canada's costs are buried in bureaucratic budgets.

United States vs. Canada: Differences in Health Care
Needs.

Because of historical and cultural differences between the two countries, the
need for health care spending is often higher in the United States than in
Canada. For example, the United States has a much higher violent crime rate,
heavier illegal drug use and a greater incidence of AIDS – all of which generate
more health care spending. According to Leroy Schwartz (Health Policy
International):
[14]

The U.S. male homicide rate is five times that of Canada, and for every homicide
there are 100 assaults reported to hospital emergency rooms.

The U. S. rate of incidents of AIDS is three times that of Canada, and the
lifetime cost of treatment is about $85,000 per patient:

More than 25 percent of the 10,000 to 15,000 annual spinal cord injuries in the
United States are due to violent assaults, and treatment and rehabilitation
costs are about $600,000 per patient.

There are about 375,000 drug-exposed babies in the United States with an average
treatment cost of $63,000 per baby. This problem is
negligible in Canada.

The
United States also has health care costs related to war injuries (including
those of Vietnam veterans), which Canada does not have. And Figure II
illustrates another important difference: U.S. teenage women have almost 2 1/2
times the pregnancy rate of teenagers in Canada, twice the birthrate, about
three times the abortion rate and more than twice the miscarriage rate. Because
teenage mothers are more likely to have premature babies and other
complications, these differences cause higher health care spending in the United
States.

Other Comparisons.

No
one has tried to sort out these differences to arrive at a bottom line. But
there is considerable anecdotal evidence that the real cost of U.S. health care
may actually be lower than Canada's. For example, hospitals in British Columbia
contract with U.S. hospitals across the border in Seattle to perform heart
surgery on Canadian patients.
[15] There is a similar arrangement between Ontario hospitals and those in
Detroit. Canadian hospital managers apparently have concluded they make a
"profit" on these transactions, and at the same time reduce the public outcry
over long waiting lists.

Another way of comparing the two nations' health care costs is to
compare Canada with some of the largest HMOs in the United States. The "managed
care" programs of HMOs resemble the cost controls imposed in Canada in the sense
of a commitment to control spending. Moreover, some HMOs are as populous as
Canadian provinces. About half of Canada's provinces have a population of one
million or fewer people, while seven HMOs in the United States have more than
one million. Although people enrolled in HMOs may not be a random sample of the
U.S. population, Figure III shows that large HMOs in the United States have
lower costs per person than Canada has:

The Harvard Community HMO in Massachusetts spends only 73 percent as much per
person as Canada spends.

Both the Kaiser Permanente and Cigna HMOs spend about 65 percent as much per
person.

To
summarize, we can draw at least four important conclusions. 1) There is no
evidence that Canada has done a better job than the United States at controlling
health care spending overtime. 2) Canada's spending on health care – under both a private
and a public system – consistently has been about 75 percent of what the United
States spends. 3} Although international statistics show that the United States
spends more per capita on health care than Canada, these statistics can be very
misleading. 4) There is some evidence that U.S. health care is less expensive
when the comparison is made on a more level playing field.

The United States vs. Other Developing Countries.

In comparing United States
health care with that of other developed countries, we encounter the same
difficulties. In addition, most international statistics on health care spending
are produced by the Organization for Economic Cooperation and Development
(OECD). Yet because of differences in reporting standards of different
countries, OECD statistics are not always reliable.
[16]

Table I shows the results
of an attempt to develop more accurate health care spending measurements among
OECD countries:

Using more precise
measuring techniques, we find that the United States spends more of its income
on health care than other countries – but the difference is smaller than people
commonly believe.

During the 1980s, the real growth rate for health care spending was higher in 11
of 15 countries than in the U.S.

In per capita terms, most countries had real growth rates that were more than
double the U.S. rate.

Many
believe that countries with national health insurance have an "advantage" the
U.S. health care system does not. In those countries the government can, in
principle. limit health care dollars and tell hospital managers to ration the
money they are given to spend. But that power is more apparent than real, and
politicians who exercise it risk being replaced by their competitors. In the
political systems of other countries, as in the U.S., there is unrelenting
pressure to spend more on health care.